NOTE: I am not a lawyer and this is not legal advice - please consult with a professional before taking any actions. If you have any concern that you are not going to be able to close on your pre-construction purchase, then contact the real estate agent you purchased the property from and your lawyer right away to discuss your options. All communication with the builder should be done through a lawyer who can appropriately craft the messaging because you don’t want to accidentally put yourself in Anticipatory Breach by saying the wrong thing. Contact me if you need a referral to a lawyer.

If you’ve purchased a pre-construction property and your closing date is just around the corner, you might be feeling the pressure, especially if your life or financial situations have changed, the market isn’t cooperating, or your original plans for the unit have shifted since you bought the property, usually several years ago. When a buyer cannot secure the necessary mortgage (often due to an appraisal gap where the bank values the home lower than the contract price), they aren't just losing their deposit - they are facing a potential legal and financial domino effect but don’t panic because there are solutions available, but you need to act quickly.

Here are the options available to you when your closing date is approaching:

1) Give the Unit Back / Walk Away

Many buyers ask: Can I just give my unit back to the developer and get my deposit back?

Pre-construction properties are not like a purchase from the mall with a return policy, and you cannot simply “walk away” from your purchase because there are legal consequences. In this market, developers never agree to simply take the unit back and return your deposit.

This is not an option.

2) Get An Extension

If the issue is simply timing (e.g., waiting on a sale of another property or a final mortgage approval), builders will often grant an extension. I’ve seen this happen before where someone’s bank will pull their mortgage approval a week before closing, or someone isn’t able to close on time because of some issue (e.g. job change, money won’t be available, etc.). If this happens to you, don’t panic. Ask your lawyer to request an extension and submit proof of your financing plans. Builders will usually grant an extension if they can see that you are working towards finding a solution, because it will take longer and cost more to sue you. Expect to pay a small extension fee and carrying costs during the extension period.

Use this time to approach B-lenders, alternative financing companies, and private lenders - I have been able to arrange financing for clients in less than 2 weeks before at very attractive rates. Contact me if you need mortgage help.

3) Add a Co-Purchaser

If you got turned down for a mortgage, then a common option is to add a co-purchase to the agreement that allows the lender to "pool" your incomes together and meet the required debt-service ratios. A bank nearly always requires a person named on the mortgage to also be on title so you need to add them as a second owner - this is very common situation for parents becoming co-purchasers for adult children who are just starting out or have run into some financial challenges.

An amendment is required to legally add a second purchasers and a developer will normally process the paperwork for a nominal fee.

Note: Adding a co-purchaser may impact your ability to claim the HST/GST Rebate as your principal residence because every person on title must be intended as the “end-user” (or a close family relation), so be sure to review the impacts with your lawyer.

4) Assignment Sale

An assignment means selling your purchase agreement to someone else before the closing. While this strategy has been historically very common in markets like Toronto an Vancouver, the assignment market today has changed and it is nearly impossible to sell an assignment without taking a MASSIVE loss (generally you will have to pay someone to take the contract from you and most likely lose more than 20% of the purchase price plus selling commissions and legal fees). For many people, this is not an attractive or viable option.

Making assignments even more challenging, is that developers don’t allow you to advertise an assignment publicly on MLS, Realtor.ca, or any other public facing platforms like Facebook, which shrinks your potential buyer pool significantly, making it nearly impossible to find someone to take over your contract.

An assignment is a great option if you have a friend or family member who is willing to take over the contract for you. Most developers will allow this for a small fee and the actual assignment process is very straightforward. This is a common arrangement with parents who are supporting their children or for close family circles to help someone out of a bind.

Note: Selling your unit on assignment does not rid you of your liability. If the next buyer fails to close, you are still liable (developers don’t simply let you off the hook).

5) Mutual Release / Termination with Payment

This is the best outcome if you can negotiate it with the builder because it completely removes you from any future liability. In today’s market, a developer will never provide a release without a further “termination payment”. This means that the buyer would forfeit their deposit and be required to make an extra payment to the developer on top. Even still, these situations are quite rare and typically allowed in cases where the buyer bought over 5 years ago, and at a very low purchase price with a large deposit like 20%.

When a developer agrees to a Mutual Release, they give up the legal right to sue you for damages later and most simply won’t do that.

Note: Always get a Mutual Release in writing to make sure that the developer can’t come after you later for damages.

6) Vendor Take Back (VTB) Mortgage

In a VTB scenario, the builder doesn't actually hand you cash. Instead, they "lend" you a portion of the equity they have in the finished unit. You take title to the property, but you owe the builder a debt secured by a mortgage.

This is most common when there is an Appraisal Gap. For example: if you bought a condo for $900,000 but it now appraises at $750,000, the bank will only lend based on that lower $750,000 value. You are $150,000 short. The builder may agree to a VTB mortgage for that $150,000 gap. You get your main mortgage from the bank as usual for the appraised value, and the builder holds a "second mortgage" for the remainder.

Note: Nearly every mortgage provider requires the approval of a second mortgage to be placed behind the first one, so be sure to have this approved with your lender before agreeing to anything for the VTB mortgage with the developer.

7) Negotiated Price Reduction

A price reduction is a formal amendment to change your Agreement of Purchase and Sale (APS) that lowers the "Sticker Price" of the home, generally done to address an Appraisal Gap.

Historically, builders have been terrified of direct price cuts because they can trigger a "race to the bottom" where every other buyer in the building will demand the same deal. Builders often prefer "Shadow Reductions" over actual price cuts to protect the building’s "comparable" values. You may have better luck asking for:

Cash-Back at Closing: The price stays the same on paper, but the builder cuts you a cheque for $50,000 on the day you close.
Mortgage "Top-Ups": The developer agrees to pay a portion of your monthly mortgage for the first 2–3 years to offset your costs.
Credit on Statement of Adjustments: The builder wipes away $20,000–$40,000 in "closing costs" (levies, taxes, and fees), which effectively acts as a price reduction without changing the registered sale price.

A builder is most likely to reduce the price if they believe that suing you is a waste of time. If your lawyer can demonstrate that you have no other assets, no home equity, and that a lawsuit would simply push you into a Consumer Proposal or Bankruptcy, the builder may accept a $50,000 price reduction than spending $30,000 on legal fees to sue someone who has no money to give.

A developer will be most willing to consider a price reduction towards the end of a project’s closings when they can see where the market valuations are landing and what their closing ratios look like. If you are one of the last units to close, other buyers can’t come back to ask for similar reductions as well so timing is important. In any case, any form of Negotiated Price Reduction is very rare.

8) Move your Deposit to Another Unit

This situation happens most often when a buyer no longer qualifies for the mortgage on the unit that they purchased, but a unit swap allows them to pivot to another unit. So instead of walking away from the deposit entirely, the buyer will “trade” their unit for another one (typically a more affordable unit) and most often within the same project.

The original Agreement of Purchase and Sale (APS) is cancelled, and a new one is signed for the smaller unit. The buyer goes back to their lender with the lower purchase price and because the loan amount is smaller, the debt-to-income ratios can come back into an "approvable" range.

Since most developments are pre-construction and are generally entirely sold out years ago, the developer often won’t have another unit available to switch but it is a possibility.

9) Defaulting on the Purchase

Defaulting means failing to close on your contract at the date and time specified - this means you are in “breach of contract”. In this case, multiple legal rulings confirm that the developer has the legal right to keep your entire deposit and resell the unit. If they sell the unit for less than your purchase price, then they have the right to sue you for the difference plus “damages” (i.e. their extra costs of selling/carrying the unit until closing), this includes: Legal Fees, Financing Fees/Interest, Carrying Costs (utilities, condo fees, etc.), Selling Costs/Marketing Expenses, Administration Costs.

These extra costs typically add another $30,000 to $50,000 plus your court costs to defend yourself against the lawsuit. In most situations today, buyers are facing a lawsuit of well over $100,000. In today’s market, there is a very high probability that you will be sued by the developer (even in Calgary). In many developments, over 20% of buyers are not closing and the developers simply can’t absorb that or let it go, so they are pursuing buyers who do not close on their purchases.

If you don’t have the cash to settle the lawsuit, they can come after other assets like your investments, business, they can garnish wages, and put liens on any property you own (including your principal residence). This is not a risk-free way out, and if you can’t settle the lawsuit, then this often leads to a bankruptcy or a creditor proposal claim which will impact your credit rating for years and may prevent you from owning any property in Canada in the future.

Defaulting should be treated as a last resort, and please get professional legal advice if you are considering this option.

Click here for more information about what happens if you do not to close on your pre-construction purchase.

10) Close and Immediately Sell

Note: To close on any investment property (i.e. a property you are not going to live in personally), you are required to have a minimum down-payment of 20% to qualify for a mortgage anywhere in Canada - there is virtually no way around this (you might be able to use a line of credit towards this if your debt service ratios allow for it). Any deposits you have given to the builder during construction count towards this total (so if you gave the builder a 10% deposit, you will need an additional 10% at closing plus your closing costs).

So if you can come up with the funds to close, then you can close and take possession of the property and then immediately list it for sale - this is the most common option by my buyers who do not want to keep the property long-term.

To make this strategy work, consider getting a variable-rate or open mortgage, which will minimize your mortgage break penalties when you sell. It’s also critical to opt out of any rental guarantee program before closing, so that you can deliver vacant possession of the unit to the new buyer. A tenanted unit is much harder to sell and it will sell for less than an empty unit. There are companies setup specifically to provide this type of short-term financing but they may require a total down-payment of 30-35%.

There may be tax implications to this strategy as well because the CRA might consider it a “flip” which means that any profit will be considered as income and added onto your marginal tax rate so if you have a profit, this could mean tens of thousands in extra taxes. However if you have a loss, the CRA may not allow you to write this off against other investment income, so get professional accounting advice if you are considering this option.

11) Close and Hold

This is the strategy I recommend for everyone that can financially manage it because it has been proven to maximize the return on your investment over the long-term. By holding your property for at least a year, any profit you make from the sale should be treated as a capital gain rather than income, meaning you pay 50% less tax! On top of that, if you rent out the unit for at least a year, you should qualify for the HST/GST rebate of up to $24,000+ , which is essentially free money back in your pocket.

Holding also gives the market time to stabilize. Immediately after closing, there is a flood of new listings as other buyers try to exit, which can temporarily suppress prices. By waiting out this initial supply shock, you give time for this extra supply to be absorbed and for your property to appreciate in value.

Most importantly, real estate is a long-term wealth-building tool. When you hold, you benefit from passive equity growth, mortgage paydown, cash flow, and the potential for strong long-term returns. It’s the strategy that is the most stable and tax-efficient option, and nearly always produces the highest returns.

Final Thoughts

Every situation is different and the wrong decision can be costly. Understanding your options ahead of closing can help you make the best decision - whether that means weathering the short-term turbulence or adjusting course.

If your closing is coming up and you’re unsure what to do, don’t navigate this alone. I help clients across Canada make strategic choices about their pre-construction properties, especially in markets like Toronto, Calgary, and Ottawa.

Let’s connect if you need help and make your investment work for you.

Kyle Dovigi
Real Estate Broker | CondoMillionaire.com
Anyone can become a Condo Millionaire - it all starts with one.